Bitcoin network isn't as decentralised as you believe, study reveals

By
Jibu EliasJan. 22, 2018, 7:23 p.m.

Researchers found that the top four Bitcoin-mining operations had more than 53% of the system’s average mining capacity

In last few months cryptocurrencies has emerged as the new class of assets, gaining a market capitalisation of over $700 billion by January 2018. Amongst them, Bitcoin and Ethereum, the favorites, are leading with a 70% market share. They have a fast growing ecosystem and a diverse active community across the globe.

One of the important reasons as to why these cryptocurrencies are attractive as a medium of transaction and asset, over traditional assets and currencies, is their decentralised nature. In the case of Bitcoin and Ethereum, the user transactions are submitted to nods across the network for where they are verified, which in return makes the system more trustworthy than a centralised system. And importantly, better decentralisation of miners also means higher resistance against censorship of individual transactions.

However, according to computer scientist Emin Gün Sirer and his team, the jury’s still out on the so-called decentralisation of these cryptocurrency networks since no one so far has done a proper analysis of how decentralised they actually are. In a paper titled "Decentralization in Bitcoin and Ethereum Networks" published this month, Sirer and his group states that the Bitcoin network isn't as decentralised as many believe it to be, based on a two-year-long study focused on Bitcoin and Ethereum networks.

The researchers found that the top four Bitcoin-mining operations had more than 53% of the system’s average mining capacity and with Etherium, top three miners accounted for 61% of the system’s average weekly capacity.

They also found that Bitcoin has many more nodes that are closer geographically than Ethereum or any other cryptocurrencies. “Ethereum’s most likely latencies are centered around 120ms, while Bitcoin nodes tend to be clustered around 50ms. Only 13% of Ethereum latencies are under 100ms, while Bitcoin has a surprisingly high 46%,” the paper points out.

This geographic proximity between nodes clearly indicates that many Bitcoin nodes are run in data centers. According to the research, 56% of Bitcoin’s nodes and 28% of Ethereum’s nodes belong to an autonomous system that provides dedicated hosting services, a difference significant at the 1% significance level.

This may not come as surprise to many as, China has been hosting most of the biggest bitcoin 'mining pools' in the world, essentially creating a geographical centralisation of the mining process. However, this raises further questions over the possibility of centralisation by miners with more powerful rigs and higher computing capacities.

“Mining on cryptocurrency networks is a complex process that typically requires large computation power,” writes the authors Adem Efe Gencer, Soumya Basu, Ittay Eyal, Robbert van Renesse, along with Emin Gün Sirer.
“With the current mining difficulty of Bitcoin and Ethereum, using commodity hardware to generate blocks is not feasible which centralises the mining process somewhat. However, as long as there are many different entities mining, the system is still decentralised,” they concluded.